Firms HD and LD each have $30m in invested capital, $8m of EBIT, and a tax rate of 25%. Firm HD has a D/E ratio of 50% with an interest rate of 8% on its debt. Firm LD has a debt-to-capital ratio of 30%, however, pays 9% interest on its debt. Calculate the following:   Return on invested capital for firm LD Return on equity for each firm If HD’s CFO is thinking of lowering the D/E from 50% to 40%, which will lower its interest rate further from 8% to 7%, calculate the new ROE for firm HD.

Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 35​% ​long-term debt, 20​% preferred​ stock, and 45​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 21​%. Debt The firm can sell for ​$1030 a 13​-year, ​$1,000​-par-value bond paying annual interest at a 7.00​% coupon rate. A flotation cost of 2​% of the par value is required. Preferred stock 8.5​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$90. An additional fee of ​$4 per share must be paid to the underwriters. Common stock The​ firm's common stock is currently selling for ​$60 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.75 ten years ago to the ​$5.41 dividend​ payment, D0​, that the company just recently made. If the…

Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 35​% ​long-term debt, 20​% preferred​ stock, and 45​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 21​%. Debt The firm can sell for ​$1030 a 13​-year, ​$1,000​-par-value bond paying annual interest at a 7.00​% coupon rate. A flotation cost of 2​% of the par value is required. Preferred stock 8.5​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$90. An additional fee of ​$4 per share must be paid to the underwriters. Common stock The​ firm's common stock is currently selling for ​$60 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.75 ten years ago to the ​$5.41 dividend​ payment, D0​, that the company just recently made. If the…

The cost of capital of firm A’s assets is 11% (this is the cost of capital/expected return that thecompany’s shares would have if the company were 100% equity financed). The cost of capitalfor firm B’s assets is 15%. Firm A has a 20% debt to equity (D/E) ratio, while firm B has a 40% D/Eratio. Both firms can borrow at a rate of 7%. If an investor holds a portfolio only comprised ofshares of these two companies’ stock (equity), in what proportions would he/she have to holdthese two firms’ shares in order to obtain an expected return of 15%?A. Invest 36% in stock A and 64% in stock BB. Invest 50% in stock A and 50% in stock BC. Invest 56% in stock A and 44% in stock BD. Invest 64% in stock A and 36% in stock BE. Invest 0% in stock A and 100% in stock B

TRU Inc. desires to maintain a capital structure of 90% equity and 10% debt. They currently have an effective tax rate of 40%. The company's cost of equity capital is 10%. To obtain their debt financing, they issue bonds with an interest rate of 15%. What is the company's weighted average cost of capital? A. 14.5% B. 9.9% C. 9.1% O D. 10.5%

James Madison Ltd. expects a net income of 200,000. The company has 5% of 1,000,000 bonds payable. The equity capitalization rate of the company is 20%. (a) Calculate the value of the firm and average cost of capital according to the net income approach (ignoring income tax).

Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 30​% ​long-term debt, 10​% preferred​ stock, and 60​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 23​%.   Debt : The firm can sell for ​$1030 a 14​-year, ​$1,000​-par-value bond paying annual interest at a 8.00​% coupon rate. A flotation cost of 2​% of the par value is required.   Preferred stock: 9.00​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$92.An additional fee of​ $2 per share must be paid to the underwriters.   Common stock: The​ firm's common stock is currently selling for ​$90 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.00 ten years ago to the ​$3.26 dividend​ payment, D0​, that the company just recently made.…

Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 30​% ​long-term debt, 10​% preferred​ stock, and 60​% common stock equity​ (retained earnings, new common�� stock, or​ both). The​ firm's tax rate is 23​%.   Debt : The firm can sell for ​$1030 a 14​-year, ​$1,000​-par-value bond paying annual interest at a 8.00​% coupon rate. A flotation cost of 2​% of the par value is required.   Preferred stock: 9.00​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$92.An additional fee of​ $2 per share must be paid to the underwriters.   Common stock: The​ firm's common stock is currently selling for ​$90 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.00 ten years ago to the ​$3.26 dividend​ payment, D0​, that the company just recently made.…

Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 40​% ​long-term debt, 15​% preferred​ stock, and 45​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 26​%.   Debt The firm can sell for ​$1005 a 13​-year, $1,000​-par-value bond paying annual interest at a 6.00​% coupon rate. A flotation cost of 2.5​% of the par value is required.   Preferred stock  7.00​% (annual dividend) preferred stock having a par value of ​$100 can be sold for ​$98. An additional fee of ​$5 per share must be paid to the underwriters.   Common stock  The​ firm's common stock is currently selling for ​$80 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.50 ten years ago to the ​$4.92 dividend​ payment, D0​, that the company just recently made. If…

Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 40​% ​long-term debt, 15​% preferred​ stock, and 45​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 26​%.   Debt The firm can sell for ​$1005 a 13​-year, $1,000​-par-value bond paying annual interest at a 6.00​% coupon rate. A flotation cost of 2.5​% of the par value is required.   Preferred stock  7.00​% (annual dividend) preferred stock having a par value of ​$100 can be sold for ​$98. An additional fee of ​$5 per share must be paid to the underwriters.   Common stock  The​ firm's common stock is currently selling for ​$80 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.50 ten years ago to the ​$4.92 dividend​ payment, D0​, that the company just recently made. If…